5 minutes on... Financing affirmative recovery programs

What is an affirmative recovery program?

Affirmative recovery programs are most commonly formal efforts by a legal department to reduce costs and enhance liquidity for a business through meritorious plaintiff-side litigation. Today, as many companies continue to look not only for cost savings but also for opportunities to add to the bottom line, affirmative recovery programs can empower legal departments to generate liquidity for the company—shifting from cost centers to value drivers.

Although affirmative recovery programs sit squarely in the legal function, finance leaders are taking notice of their potential. The 2021 Legal Asset Report—a survey of 378 senior financial officers of companies with annual revenues of $50 million or more—provides both geographic and industry snapshots into how senior financial officers think about affirmative recovery programs and how to manage their associated cost and risk.

We take five minutes to highlight insights from the report that shed light on affirmative recovery programs.

Companies have untapped value in affirmative litigation

While 73% of financial officers report that their companies have extremely or very extensive affirmative recovery programs, almost half also report that their programs do not meet the company’s needs. This suggests that companies have an opportunity to do better.

Further, large company financial officers (those from companies with more than $1 billion in annual revenue) are the most likely to report that recovery programs are large and need improvement.

One of the gaps is that many companies leave claims and judgments unpursued, thus neglecting to recover working capital to the business and foregoing the opportunity to generate liquidity and improve company balance sheets. For example, despite having recovery programs in place, 49% of financial officers report that their companies neglected to enforce judgments due to cost in 2020, with half reporting the amounts at stake to total $20-$100 million.

Emphasizing the connection between having an effective recovery program and returning value to the business, those financial officers who reported inadequate affirmative recovery programs were 27% more likely to also report that their companies routinely leave money on the table by failing to enforce judgments.

Improve recovery programs with legal finance 

A common barrier to the pursuit of meritorious claims and to the establishment of effective affirmative recovery programs is the concern that doing so will add cost and risk to the business. Even in situations where a company is likely to recoup significant recoveries in clearly meritorious matters, there is always a risk not only of outright loss but also of delay—and indeed, duration risk is a major factor in commercial disputes.

Legal finance can be an important tool for any company embarking on an affirmative recovery program. When a company works with a legal finance provider, the upfront legal fees and expenses are paid for by the funder on a non-recourse basis (meaning repayment is contingent upon a successful outcome, shifting downside risk of loss and duration risk to the funder). A company can also use legal finance to increase the company’s liquidity and control the timing of cash flows associated with recoveries, accelerating or “monetizing” an expected litigation or arbitration outcome based on the company’s preferred timing, not the timing of the litigation or arbitration.

In this manner, a financed affirmative recovery program can serve as both a P&L solution and a balance sheet solution, shifting upfront costs to a third party and eliminate the risk of loss, thus enabling legal departments to contribute to the bottom line without adding to expenses, and monetizing likely outcomes to create immediate liquidity in advance of a litigation recovery. Further, legal finance partners of Burford’s scale have third-party data and expertise that can help companies prioritize the matters that are most likely to yield the most positive results as quickly as possible.

Download our guide to affirmative recoveries to learn more about how Burford can help augment your company’s recovery program or help put a program in place.